Direct Democracy and Public Employees
38 Pages Posted: 30 May 2007
Date Written: May 2007
In the public sector, employment may be inefficiently high because of patronage, and wages may be inefficiently high because of the strength of public employee interest groups. This paper explores whether the initiative process, a direct democracy institution of growing importance, can control these political economy problems, as proponents and some research suggests. Based on a sample of 500+ cities in 2000, I find that when public employees are allowed to bargain collectively, driving up wages, the initiative appears to cut wages by about 5 percent but has no measurable effect on employment. When public employees are not allowed to bargain collectively and patronage is a problem, initiatives appear to cut employment but not wages.
Keywords: Direct democracy, public employees, initiatives, unions
JEL Classification: H7, J45, D7
Suggested Citation: Suggested Citation